Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
Display paragraphs in this book containing:
First Pub. Date
New York: Maynard, Merrill, and Co.
Pub. Date
Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
568 of 1105





—1. Until 1840 the United States government never ventured to assume entire control of its own funds. These were left with the two corporations known as banks of the United States, 1791-1811 and 1816-36 (see BANK CONTROVERSIES, II., III.), and in other years with various state banks selected by the secretary of the treasury. The agreements with the state banks usually provided, 1, that they should receive all moneys collected by federal receivers; 2, that they should pay at sight all drafts from the treasury; 3, that the treasury should maintain in each bank a sum fixed by agreement in each case, as a permanent deposit, the use of which without interest should repay the bank for its trouble and responsibility. Such agreements were also made with state banks during the existence of a United States bank, but with the additional proviso that the state bank should, on request, transfer to the United States bank, or one of its branches, any money received in excess of the amount of the permanent deposit. These agreements were legal even during the existence of the second bank of the United States under that clause which directed deposits to be made in the bank or its branches, "unless the secretary of the treasury shall at any time otherwise order and direct." (See DEPOSITS, REMOVAL OF.) The permanent deposits amounted, in 1824, to about $900,000 in twelve banks of the western and southwestern states. They were made for the convenience of the government in localities where there was no branch of the national bank; and Jackson's "removal of the deposits" was an expansion of this temporary provision into a medium for the overthrow of the national bank itself.


—The first annual message of President Jackson, in which the first vague menace to the recharter of the bank of the United States was given, suggested the creation of a national bank whose functions and employés should be under the direct control of the treasury department; but this project, under the new system of dismissals from office for political reasons (see DEMOCRATIC PARTY, IV.), would have only needlessly intensified the opposition to the administration, and it was abandoned. Just before the removal of the deposits in 1833, the president had suggested the employment of state banks as depositaries of revenue, and his idea was carried into effect by the act of June 23, 1836. It authorized the secretary of the treasury to select at least one bank in each state and territory, and to order the revenue to be deposited therein. The deposit banks, or "pet banks," as they were commonly called, were to discharge all the duties heretofore performed by the bank of the United States, were to pay in specie, and were not to issue small notes. The surplus revenue was to be "deposited" with the states, nominally as a loan. (See INTERNAL IMPROVEMENTS, II.)


—During the whole of Jackson's second term economic changes were taking place, which were hurried by some of the results of his political warfare into a rapid and unhealthy development. The first 1,200 miles of the American railway system had been built, and the steam navigation of western waters had been begun; the number of immigrants reached 275,099 in the years 1831-7, as against 79,741 for the seven years previous; the sales of public lands had increased from $2,329,356.14, in 1830, to $24,877,179.86, in 1836; the payments for public lands gave employment to the notes of countless new banks, with and without capital; and the deposit of this sudden and enormous increase of federal revenue in the pet banks stimulated them also to operations far beyond the limits of their legitimate capital. July 11, 1836, the secretary of the treasury issued his "specie circular," ordering government agents to receive only gold and silver in payment for public lands. This checked the stream of paper in its movement to the west, and turned it back upon the east; and the banks which had issued their notes so lavishly, unable to redeem them, suspended specie payments in May, 1837. The result was the panic of 1837.


—II. As the federal government, whose entire resources were on deposit in the pet banks, was included among the creditors to whom payment was refused, President Van Buren, soon after his inauguration, found himself at a loss to defray the government's running expenses, and was compelled to call an extra session of congress for Sept. 4, 1837. His message at the opening of the session declared that the national bank and the state bank systems had both had a fair trial and both had failed, and that the people were now anxious to entirely separate the fiscal concerns of the government from all banking corporations. To this end he suggested that the revenues of the government should be left in the hands of the collecting officers, or assistant treasurers, throughout the country, to be disbursed, transferred, and accounted for to the secretary of the treasury, the fidelity of the agents to be secured by bonds. This was the independent treasury or sub-treasury plan, which had been introduced into the house in 1834, by Gordon, of Virginia, and had then received but 33 votes, only one of these being given by a democrat. President Van Buren now adopted it, against the wish of the great majority of his party, and almost the whole of his single term of office was devoted to the establishment of it.


—Congress was nominally democratic in both branches. In the senate there were 33 democrats to 19 whigs (Calhoun being included in the latter). and in the house 125 democrats to 116 whigs. But a part of the democrats (4 in the senate and 14 in the house) called themselves conservatives, and opposed the adoption of the sub-treasury system as an attempt to ruin the state banks by depriving them of the funds of the government; and in the house these conservatives held the balance of power. In the senate Silas Wright, of New York, chairman of the finance committee, reported a sub-treasury bill which, as amended after its reception, prohibited the government agents from receiving anything but gold and silver. This was the realization of the long cherished wish of Benton and other leading democrats, to base the party policy absolutely on "hard money," leaving paper entirely to the credit of state corporations and private citizens. In the states, furthermore, the advanced democrats (see LOCO-FOCO) wished to prohibit charters for any such purpose, and to leave paper entirely to individual credit. The whigs hoped to gain a new national bank out of the confusion; the conservatives merely desired the continuance of government support for the state banks.


—The Wright bill passed the senate by a vote of 26 to 20, and was tabled in the house by a vote of 119 to 107; evidently, excluding "pairs," which were just beginning to be recognized in congress, the conservative vote had been decisive in the house. In the first regular session, beginning Dec. 4, 1837, and in the second regular session, beginning Dec. 3, 1838, the same process was repeated, the Wright bill being passed by the senate, and voted down by the house. The only attempts at remedial legislation by this congress were the acts of Oct. 16, 1837, ordering the public moneys to be withdrawn from the deposit banks, and mulcting delinquent banks in interest and damages, and of Oct. 12, 1837, authorizing the issue of $10,000,000 in transferable treasury notes, payable in one year with 6 per cent. interest. The specie circular still controlled the agents of the government, and a two-thirds majority was not available in congress to over-ride the veto which it was known would be laid upon any paper money legislation. All parties were waiting for the country's decision in the congressional elections of 1838, which proved to be the most closely contested in our history (see BROAD SEAL WAR); but, while waiting, the government, which had deposited $37,000,000 with the states, and had claims for $15,000,000 against banks and individuals, came so near insolvency that congress was forced, May 21, 1838, to authorize the issue of fresh treasury notes in place of those canceled.


—In the 26th congress, which met Dec. 2, 1839, the nominal control of, the house depended on the admission of the New Jersey members, and was given to the democrats by the admission of their contestants. The balance of power, however, was now held by the few sub-treasury whigs, whose importance was recognized by the election of one of their number speaker, supported by the democrats. The conservatives had almost entirely disappeared; only four of them had been re-elected to the new congress, and these had nearly ceased their opposition to the sub-treasury. The Wright bill was again introduced, was debated through the session, passed both houses by votes of 24 to 18 in the senate, and 124 to 107 in the house, and became a law, July 4, 1840, by the signature of the president. It directed rooms, vaults and safes to be provided for the treasury, in which the public money was to be kept; it provided for four receivers general, at New York, Boston, Charleston and St. Louis, and made the United States mint and the branch mint at New Orleans places of deposit; it directed the treasurers of the United States and of the mints, the receivers general, and all other officers charged with the custody of public money, to give proper bonds for its care and for its transfer when ordered by the secretary of the treasury or postmaster general; and enacted that after June 30, 1843, all payments to or by the United States should be in gold and silver exclusively.


—The results of the first brief trial of the sub-treasury system, July 4, 1840—Aug. 13, 1841, totally failed to verify the prophecies of the whigs and conservatives. It inflicted no damage upon the state banks, or upon business at large; it did not increase the number of offices at the disposal of the president and his party, or the power of the president over the commercial interests of the country; it laid no "cornerstone of despotism its practical operation was much more smooth and successful than might have been anticipated in a civil service already so far debased; and it plainly relieved the government from any except indirect and remote consequences of suspension of specie payments by the banks, and the country from the difficulties and dangers incident to the control of a national bank by a representative body. Its passage opened a hitherto unthought-of door of escape from a national bank so inviting that it would have been foolish for the dominant party not to have availed itself of it, and so convenient, when tried, that it would have been impossible on a fair test to induce the country to retrace its steps. Only the momentum of the whig party proper, acquired by years of struggle for a national bank, compelled its leaders to keep up for a time a contest whose futility they were quick to perceive. The first successful execution of the independent treasury act made a national bank an impossibility with general popular consent, and completed the "divorce of bank and state," for which the president had for three years been exerting all his energy and influence. The result must be accredited mainly to Van Buren; usually regarded as a shuffler and intriguer, he had in the midst of the most wide-spread panic yet known in America, unshrinkingly and openly committed his political future to the then unpopular doctrine of non-interference by government, had forced his party to concur with him, and had finally, after three failures in as many sessions of congress, been successful in establishing the independence of the treasury.


—III. The election of Harrison in 1840 was accomplished by a union of all the heterogeneous elements of opposition, and by that double-faced promulgation of different policies for different sections which the democrats imitated with equal success in 1844. (See DEMOCRATIC PARTY, IV.; WHIG PARTY, II) Nevertheless it brought into the house a majority of whigs whose party training had predetermined them to one purpose, the renewal of the bank of the United States. (See BANK CONTROVERSIES, IV.) To this end the repeal of the independent treasury act was essential, and the repealing act was passed by votes of 29 to 18 in the senate and 134 to 87 in the house, and became law, Aug. 13, 1841. The next congress, 1843-5, although it had a democratic majority in the house, had a sufficient whig majority in the senate to defeat any effort to renew the sub-treasury system. For five years after its repeal, therefore, the treasury was managed practically at the discretion of its secretary, and with no adequate regulation by law. Where depositaries were absolutely necessary the banks of the different states were used, and the secretary of the treasury obtained collateral security for the deposits from such banks as were willing to give it. Polk's election brought in a congress democratic in both branches. The sub-treasury system was again introduced, passed both houses and became law, Aug. 6, 1846. This act was essentially the same as that of July 4, 1840, and has remained in force almost unchanged. The act of Feb. 25, 1863, creating a system of national banks, authorized the secretary of the treasury to make any of these associations depositaries of public money, except receipts from customs; the original sub-treasury act had provided but seven places of deposit: New York, Boston, Charleston, St. Louis, the mints at Philadelphia and St. Louis, and the treasury at Washington, the first four being under the control of assistant treasurers. (See, in general, BANK CONTROVERSIES; DEPOSITS, REMOVAL OF; DEMOCRATIC PARTY, IV.; WHIG PARTY, II.)—(I.) See 26 Niles' Register, 291; 3 Parton's Life of Jackson, 272, 515; Sumner's American Currency, 114; 2 von Holst's United States, 174; Bromwell's Immigration, 174; 1 Colton's Life and Times of Clay, 456; 1 Benton's Thirty Years' View, 676; the act of June 23, 1836, is in 5 Stat. at Large, 52. (II.) See 2 Statesman's Manual (Van Buren's Messages); 12 Benton's Debates of Congress, 506, and 13:403; 4 Webster's Works, 402, 424; 3 Whig Review, 465; the acts of Oct. 12 and 17, 1837, and the subtreasury act of July 4, 1840, are in 5 Stat. at Large, 201, 206, and 385. (III.) See Gillet's Democracy in the United States, 193; Schuckers' Life of Chase, 300; J. H. Walker's Money, Trade and Banking, 81; the act of Aug. 13, 1841, is in 5 Stat. at Large, 439, that of Aug 6, 1846, in 9 Stat. at Large, 59, and that of Feb. 25, 1863, in 12 Stat. at Large, 696.


568 of 1105

Return to top